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How to Use 'Cash for Clunkers'

The government's "cash for clunkers" program, officially called the Car Allowance Rebate System, or CARS for short, is in full swing, but only some consumers will be able to participate thanks to the eligibility requirements for potential buyers, their current vehicles and the vehicles they plan to buy or lease.

Car Allowance Rebate System
Car Allowance Rebate System

The program was designed to help consumers buy or lease a more environmentally friendly car, pickup or SUV when they trade in a less fuel-efficient one. Consumers can get a $3,500 or $4,500 credit toward the purchase of a new vehicle depending on the fuel economy improvement between the two vehicles, according to the government's Web site cars.gov. This credit is considered the buyer's trade-in value, and their clunker is sent off to be crushed. Here's the lowdown on the process.

Step 1: Determine if you qualify.
The person trading in the clunker must have been the vehicle's owner on the registration and the title for at least one year prior to the date of purchase, according to the program's requirements. The title must be "clear," so if there is a lien holder, you must first clear the lien before participating in the program. Consumers can only participate in the program once.

For a vehicle that has two names on one title, such as a married couple, only one person can take advantage of the program. If there are two cars with two names on each title, each person can receive a credit for each clunkers.

Step 2: Determine if your vehicle qualifies.
Vehicles that are traded must be no more than 25 years old and must get no more than 18 miles per gallon as a combined average fuel economy under the EPA's new estimated mile-per-gallon calculations. There are different requirements for a cargo van or very large pickup, referred to as a work truck in the program. To find the combined mile-per-gallon rating for your car, pickup or SUV, go to the EPA's FuelEconomy.gov site and select the model year, make, model and engine of your vehicle, and make sure the red number above the word "combined" is 18 or less.

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Step 3: Determine if the new vehicle you want to purchase or lease qualifies.
The CARS program only applies to new, not used, vehicles that are being purchased or leased for a five-year term or longer, and have a manufacturer's suggested retail price of $45,000 or less, the program's requirements state.

If the new vehicle is a passenger car, it must get at least 22 miles per gallon in combined average fuel economy, while Category 1 trucks -- light-duty pickups, some SUVs and minivans -- must have a combined fuel economy rating of at least 18 miles per gallon. Category 2 trucks -- large light-duty pickups and some vans -- must get at least 15 miles per gallon combined, according to EPA estimates. The combined fuel economy ratings for all new vehicles ares listed on the vehicle's window sticker or can be calculated at FuelEconomy.gov. Be sure you know the make, model, engine and transmission of the new vehicle to obtain the correct mile-per-gallon number.

Next: Should you try selling your clunker yourself?

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